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You are the Senior Manager in Fizz which is a large company that manufactures soft drinks.
Fizz has its head office in Nortland and is quoted on the Nortland Stock Exchange. You
report directly to the Board and advise on special projects and strategic matters.
Nortland uses International Financial Reporting Standards.
Nortlands currency is the N$.
Nortlands overall soft drinks market breaks down by retail sales value as follows:
Off-trade sales are split 49% CSD and 51% still by value. On-trade are 72% CSD and 28%
still.
Retail sales of soft drinks in Nortland totalled N$12.3 billion in the year to 31 December
2016, of which N$8.2 billion was off-trade and N$4.1 billion was on-trade.
Retail prices are significantly higher for on-trade sales and so on-trade sales account for
approximately 10% of soft drink sales by volume, despite being roughly 33% by value
Company background
Fizz was founded by the Clann family in 1890. The companys first products were marketed
as refreshing tonics that were designed to settle mild stomach upsets and to help invalids to
keep themselves hydrated.
Fizz sells soft drinks (non-alcoholic). The company manufactured 422 million litres of soft
drinks in the year to 31 December 2016.
Fizz was listed on the Nortland Stock Exchange in 1962. The Clann family still holds 18% of
the companys shares.
Several of Fizzs earliest products are still in production, most notably Froot, a carbonated
soft drink that is very popular in Nortland and has a growing global market.
The companys main products are:
Froot The companys most popular product that has changed very little since it
was first sold as Fizz Fruit Drink in 1890. The drinks name had to
change to Froot in the 1960s because changing consumer protection
legislation would have required a significant increase in the amount of
fruit, as opposed to fruit flavourings, contained in the drink. Froot is
widely available from on-trade and off-trade outlets throughout Nortland.
Froot has a refreshing taste. The regular version is sweetened with corn
syrup, which contains a great deal of fructose, a naturally occurring
sugar, but there is also a sugar-free version that is sweetened artificially.
A 330ml can of Froot contains about as much caffeine as a cup of coffee.
Fizz Fizz sells a range of carbonated drinks, including Fizz Cola, Fizz Orange
Carbonated and Fizz Cream Soda. These drinks sell steadily through the off-trade
sector, but they are not market leaders.
Fizz Carbonated drinks have both regular and sugar free versions and
they contain the same level of caffeine as Froot.
Still drinks
Clann Cordial Clann Cordial is a concentrated drink that is mixed with water before
consumption. It comes in a range of fruit flavours. It is sold through the
off-trade channel.
Joocy Juice Joocy Juice is a range of real fruit juices that are sold in 1 litre cartons.
Juicy Juice is a premium brand. It is made by harvesting fruit and having
it pressed locally. The resulting juice is then packaged into cartons
immediately and shipped to Nortland for sale.
Fizzs competitors use concentrated juice. They extract the juice and
then evaporate away most of the water content. The concentrated juice is
then shipped to Nortland in tanks. The juice is reconstituted by adding
water before packaging it in cartons. This process is far cheaper, but the
process affects the flavour of the juice and removes some of its vitamin
content. Joocy Juice is made by extracting the juice and packaging it on-
site. The resulting juice is said to taste better and have a higher vitamin
content because it has not been processed to extract the water.
In addition, Fizz sells Clann Spring Water in both carbonated and still versions. The water is
collected from a spring that surfaces in a plot of land close to Fizzs factory in Nortland. Both
still and carbonated water is packaged in cans and bottles for sale through off-trade and on-
trade.
Fizz is one of the largest manufacturers of soft drinks in Nortland.
Fizzs main competitor is Qwench which manufactures its
own range of CSDs and still drinks. Qwench also has the
franchise to bottle and sell a global-brand of cola drink. The
cola drinks manufacturer makes and sells its drink in the
USA. It achieves global sales by selling its drink as a
concentrated syrup, which it sells in bulk to a designated
franchisee in each national market. The franchisee dilutes the
syrup with carbonated water and sells it in bottles and cans
that are identical to those made by the original manufacturer.
Qwench generates 45% of its revenues from this franchising
arrangement.
Fizz also sells Froot in 500ml cans, 1 litre and 2 litre bottles and as cartons of concentrated
syrup for sales to bars, cafes and restaurants that are equipped with soda fountains.
Organisation Chart
CEO
Production Human
Department Resources
Department
Fizzs Board
Responsibility
Low Risk 1-8
5=Very likely
Likelihood
1=Unlikely
Severity
Control
Risk
Operational
Commercial
Commercial continued
Fizz strategy
Fizz
Consolidated statement of financial position
As at 31 December
2016 2015
N$m N$m
Non-current assets
Intangible assets 141.9 109.2
Property, plant and equipment 116.0 109.8
257.9 219.0
Current assets
Inventories 21.4 19.8
Trade receivables 68.0 69.8
Cash and cash equivalents 10.4 7.0
99.8 96.6
Equity
Share capital and share premium 17.6 17.6
Retained earnings 255.2 220.0
272.8 237.6
Non-current liabilities
Borrowings 21.3 10.4
Deferred tax 10.1 9.8
31.4 20.2
Current liabilities
Trade payables 45.3 47.8
Current tax 8.2 10.0
53.5 57.8
357.7 315.6
Qwench
Consolidated statement of financial position
As at 31 December
2016 2015
N$m N$m
Non-current assets
Intangible assets 702.7 704.6
Property, plant and equipment 332.1 305.0
1,034.8 1,009.6
Current assets
Inventories 118.8 109.5
Trade receivables 379.1 359.8
Derivative financial instruments 67.4 -
Cash and cash equivalents 316.3 184.3
881.6 653.6
Equity
Share capital and share premium 140.3 140.3
Cash flow hedge reserve 68.3 (4.8)
Retained earnings 774.5 592.8
983.1 728.3
Non-current liabilities
Loans 340.0 386.3
Deferred tax 49.3 46.1
389.3 432.4
Current liabilities
Trade payables 505.1 463.2
Derivative financial instruments - 4.6
Current tax 38.9 34.7
544.0 502.5
1,916.4 1,663.2
Qwench
Share prices
1800
1600
1400
Share prices in Cents
1200
1000
800 Fizz
600 Qwench
400
200
Press clippings
Daily News
Are soft drink manufacturers ignoring
obesity risks?
The blog site Fighting Fat has been running a hugely successful campaign against
the sugar in soft drinks that children love. There are now over 500,000 bloggers on the
site.
The soft drinks manufacturers are fighting back with their own publicity claiming that
parents need to take some responsibility themselves and prevent their children drinking
so many sweet fizzy drinks.
Many schools have banned sugary drinks in their snack shops due to parent and
government pressure.
Daily News
The True Cost Of Sugary Drinks
The increasing incidence of obesity is having a profound effect on the nations health
and is diverting increasing amounts of resources from the health service.
Fatty foods used to be the main cause of obesity, but foods and drinks with high sugar
content are emerging as more significant causes.
Governments are increasingly concerned about the rising costs of illnesses such as
type 2 diabetes and cancer, which have risen alongside an obesity epidemic. The
battle between food companies and governments may be only just beginning; if health
systems fail under the strain of obesity-related diseases, regulators will act to prevent
rather than treat them afterwards.
Several countries are introducing legislation to help curb intake of sugary foods;
health warnings, sales taxes, banning of junk foods in schools, restrictions on
advertising to children and reduced portion sizes will become more prevalent.
Daily News
Health Watchdog Issues Warning on
Energy Drinks
The current fashion for young adults to drink energy drinks has led to a warning from
the medical profession concerning the safety of those drinks.
Energy drinks are sold as dietary supplements, which means that there are fewer
restrictions on the concentration of the stimulants that give them their refreshing
properties. Legally, soft drinks cannot contain more than 71mg of caffeine in a can, but
there is no legal limit on the quantity that can be added to an energy drink. Some
products contain as much as 400mg per can, equivalent to drinking several cups of
strong coffee.
Most consumers are aware of the effects of caffeine but many do not realise that energy
drinks usually contain other stimulants as well, such as guarana, which is essentially a
compound of caffeine. Doctors are concerned that consumers do not fully understand
the risks that they are taking.